Bloor v. Fritz
180 P.3d 805 (2008)
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Rule of Law:
A real estate agent's failure to disclose known material facts, such as methamphetamine contamination, about a property to prospective buyers constitutes negligent misrepresentation and an unfair or deceptive act under the Consumer Protection Act. When rescinding a contract, damages should be limited to restoring the parties to their pre-contractual position without overcompensating for financed amounts.
Facts:
- Robert and Charmaine Fritz owned a home and five acres and hired LAM Management, Inc. (co-owned by Lance Miller) to manage it as a rental property.
- In January 2004, a narcotics task force executed a search warrant at the property, discovering a marijuana growing operation and implements for methamphetamine manufacturing.
- News reports and direct contact with law enforcement informed Charmaine Fritz (who then informed Robert Fritz) and Lance Miller of the methamphetamine lab discovery.
- The Fritzes decided to sell the property, cleaned it, painted it, changed floor coverings, and Charmaine Fritz told neighbors the tenants had cooked meth only on the back porch.
- Lance Miller, a licensed real estate agent for LC Realty, represented both the Fritzes and Eddie and Eva Bloor in the subsequent sale of the property.
- Robert Fritz completed a seller's disclosure statement representing that the property had never been used as an illegal drug manufacturing site; Miller reviewed this with the Bloors but did not disclose his personal knowledge of the drug activity.
- The Fritzes accepted the Bloors' offer, and the transaction closed in August 2004, with the Bloors moving into the home shortly thereafter.
- In September 2004, the Bloors learned from a community member that the property was known as a "drug house," and subsequent investigation confirmed the methamphetamine contamination, leading the Cowlitz County Health Department to declare it unfit for occupancy, forcing the Bloors to abandon their personal belongings and suffer financial and emotional distress.
Procedural Posture:
- Eddie and Eva Bloor sued Robert and Charmaine Fritz, Lance Miller, LAM Management, LC Realty, and Cowlitz County.
- After a bench trial, the trial court ruled in favor of the Bloors, finding the Fritzes negligently misrepresented the property's condition and Miller failed to disclose known material facts and negligently misrepresented the condition, violating the Consumer Protection Act.
- The trial court awarded the Bloors damages, punitive damages, attorney fees, rescinded the contract, and ordered the Fritzes to pay the Bloors' lender the purchase price, accrued interest, late charges, and foreclosure fees, with the Bloors returning the property. It also awarded the Bloors expenses and additional attorney fees.
- Lance Miller and LC Realty (appellants) and Robert and Charmaine Fritz (appellants) appealed the trial court's decision to the Washington Court of Appeals, Division 2, with the Bloors as respondents.
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Issue:
Does a real estate agent's failure to disclose known methamphetamine contamination on a property, despite a seller's false disclosure, constitute a breach of the statutory duty to disclose material facts, negligent misrepresentation, and a violation of the Consumer Protection Act, and can a trial court, when ordering rescission, award damages beyond those necessary to restore the parties to their pre-contract position?
Opinions:
Majority - Armstrong, J.
Yes, a real estate agent's failure to disclose known methamphetamine contamination constitutes a breach of statutory duty, negligent misrepresentation, and a Consumer Protection Act violation. However, no, the trial court erred in calculating damages by granting the Bloors more than necessary to restore them to their pre-contract position. The court affirmed the trial court's findings that Lance Miller had actual knowledge of the methamphetamine manufacturing on the property, derived from discussions with his business partner Brudvik, Charmaine Fritz, and law enforcement. Substantial evidence supported that Miller's denial of knowledge was not credible. Consequently, Miller violated RCW 18.86.030(1)(d), which requires a real estate agent to disclose all existing material facts known and not apparent or readily ascertainable to a party, as methamphetamine manufacturing is a material fact substantially affecting property value. This also constituted negligent misrepresentation, as Miller was negligent in failing to communicate true information about the property's condition to the Bloors. Miller’s conduct of listing and showing the property without disclosing its history had the capacity to deceive the public and impacted public interest, thus violating the Consumer Protection Act. The court found no abuse of discretion in ordering rescission, an equitable remedy aiming to restore parties to their pre-contract position. However, the trial court erred in its damage calculation by including interest on the full $149,000 purchase price, as the Bloors financed the purchase and did not lose the use of those funds. Instead, the Fritzes were required to pay the Bloors' outstanding mortgage debt (principal, actually accrued interest, penalties, and foreclosure costs) to clear the Bloors' obligation and regain title, without providing any excess funds to the Bloors. The court affirmed the awards for loss of income, damage to credit rating, emotional distress, litigation expenses beyond statutory costs (per the contract's broad 'expenses' clause), and the application of a 1.2 lodestar multiplier for attorney fees due to the case's complexity, novel issues, contingent nature of success, and preclusion from other work.
Analysis:
This case significantly strengthens the obligations of real estate agents to disclose known material defects affecting property value and habitability. It clarifies that an agent cannot rely on a seller's false disclosure if the agent has independent knowledge of the defect, and that such failures can lead to liability under both tort law and consumer protection statutes. Furthermore, the decision provides critical guidance on the equitable remedy of rescission, particularly regarding the accurate calculation of damages to ensure true restoration to the pre-contract status quo, preventing unjust enrichment or overcompensation in cases involving financed purchases. Future cases will likely cite this decision for the comprehensive application of disclosure duties and the precise principles governing rescission-related damages.
